This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1996).




Robert O'Leary, as trustee of

Lakeland Printing Co., Inc., Profit Sharing Trust; et al.,



Carefree Living of America (Minnetonka), Inc.,


Filed August 5, 1997


Huspeni, Judge

Hennepin County District Court

File No. 9613648

Michael C. Mahoney, Stephen P. Laitinen, Karl A. Oliver, Mahoney, Hagberg & Rice, P.A., 1500 Metropolitan Centre, 333 S. Seventh St., Minneapolis, MN 55402 (for Appellant)

Paul R. Haik, Louis A. Haik, John C. Kolb, Krebsbach and Haik, Ltd., 701 Fourth Ave. S., Suite 500, Minneapolis, MN 55415-1631 (for Respondents)

Considered and decided by Willis, Presiding Judge, Huspeni, Judge, and Schultz, Judge.[*]



Respondent, a limited partner of a dissolved partnership, moved the court to supervise the winding up of the partnership and to impose a constructive trust on the partnership's only asset, which had been quitclaimed to appellant. Appellant challenges the granting of the motion. Because we see no error of law in the imposition of the constructive trust, we affirm.


Will Selbak, director, president, CEO, and sole shareholder of Leisure Living of Minnetonka, Inc. (LLM Inc.), formed Leisure Living of Minnetonka, Ltd. (LLM Ltd.), to procure property for an elder-care residence. LLM Inc. was the general partner of LLM Ltd., and Selbak was a limited partner.

LLM Ltd. put out a private placement memorandum offering limited partnership units for $39,600. The memorandum identified Selbak as the only source of authorized information and said that property was to be purchased for $250,000. Respondent Robert O'Leary, a trustee for a number of shared benefit trusts and unitary trusts, invested $287,100 on behalf of the various trusts to purchase a total of 7.25 partnership units.[1] About three years later, Selbak purchased property for $250,000 on a contract for deed, which he eventually recorded. Selbak held the property in trust for LLM Ltd. until LLM Ltd. was dissolved by operation of law when its general partner, LLM Inc., was dissolved for failing to file its registration after being notified that it had not done so for three years.

Selbak then quitclaimed the property for less than $500 to appellant Carefree Living of America (CLA), a corporation he formed under Delaware law with himself as its controlling shareholder, president, and CEO. Appellant borrowed $4,136,000 to pay off the contract for deed, purchase the property, and construct the facility.

After CLA began negotiating the sale of the facility to a third party, respondent brought this action. Respondent moved the court to supervise the winding up of LLM Ltd. and to place the property in a constructive trust so it could not be sold for value to a purchaser unaware of respondent's interest in it. The motion was granted, and the property was placed in a constructive trust.


1. The Imposition of the Constructive Trust.

Appellant contends that the district court erred as a matter of law in imposing a constructive trust on LLM Ltd.'s property. A reviewing court is not bound by and need not give deference to a trial court's decision on a purely legal issue. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).

Documentary evidence showed that respondent paid for shares in LLM Ltd., that LLM Ltd. acquired property, that LLM Ltd. dissolved, and that its property was transferred to appellant, an entity newly created by the individual who had been director, CEO, and sole shareholder of LLM Ltd.'s dissolved general partner.

[W]henever the legal title to property is obtained through fraud, oppression, duress, undue influence, force, crime or similar means, or by taking improper advantage of a confidential or fiduciary relationship, a constructive trust arises in favor of the person equitably entitled to the property.

Wright v. Wright, 311 N.W.2d 484, 485 (Minn. 1981) (emphasis added). Appellant argues that because Wright declined to impose a constructive trust, it supports appellant's position. We disagree and find no support in Wright for appellant's position. The plaintiffs in Wright, having lent their son purchase money for a homestead, sought to have a constructive trust placed on it after the son quitclaimed his interest as part of the property settlement in his divorce. Plaintiffs were held not entitled to a constructive trust because the loan was not due and payable until the sale of the homestead, and no sale had occurred. Here, the property is not homestead, but commercial; the interest in the property stems not from a loan, but from shares in the entity that owned the property; the property has already been transferred to another entity; and negotiations were in progress for its sale when the constructive trust was applied for.[2]

Appellant also argues that the constructive trust was unnecessary because respondent had filed a notice of lis pendens, so there could be no bona fide purchaser of the property. Appellant cites Fingerhut Corp. v. Suburban Nat'l Bank, 460 N.W.2d 63 (Minn. App. 1990), to support this argument. Fingerhut, however, does not hold that a constructive trust and a notice of lis pendens are mutually exclusive; it actually holds that a constructive trust "establishes an equitable lien * * * which brings the cause of action within the lis pendens statute." Id. at 67. The fact that respondent protected its interest in the property by a notice of lis pendens did not preclude it from seeking the additional protection of a constructive trust.[3]

Given the evidence that appellant's interest in the property was acquired through the misuse of Selbak's fiduciary relationship with respondent, there was no error of law in the imposition of the constructive trust.

2. The Motion for a Constructive Trust.

Appellant argues that the motion for a constructive trust should have been treated as either a motion for a prejudgment attachment or a motion for summary judgment.

Appellant relies exclusively on Mitsubishi Int'l Corp. v. Cardinal Textile Sales, Inc., 14 F.3d 1507 (11th Cir. 1994), to argue that a constructive trust is actually a prejudgment attachment, subject to the statute governing attachments.[4] Even if Mitsubishi were apposite, appellant's reliance would be misplaced. Mitsubishi concerned both a temporary restraining order (TRO) and a constructive trust and held that the TRO (not the constructive trust) "was akin to a pre-judgment writ of attachment." Id. at 1520. Mitsubishi does not support appellant's argument that a constructive trust is akin to a prejudgment attachment.

Appellant argues in the alternative that respondent's motion for supervision of the winding-up and imposition of a constructive trust was actually a motion for summary judgment. Appellant claims the court should have viewed the facts in the light most favorable to appellant, found that general issues of material fact precluded summary judgment, and denied the motion.

An essential distinction exists, however, between a motion for summary judgment and a motion for a constructive trust: one is dispositive and the other is not. Property in a constructive trust has not been disposed of. See In re Estate of Vittorio, 546 N.W.2d 751, 755 (Minn. App. 1996) ("The establishment of a constructive trust does not set aside the title to the property * * *.").[5] Respondent concedes that the imposition of the constructive trust is an intermediate step in this litigation and that there will be a trial on the merits.

Appellant's citation of Emerick ex rel. Howley v. Sanchez, 547 N.W.2d 109 (Minn. App. 1996), to argue that a motion for a constructive trust is actually a motion for summary judgment, is not persuasive. In Emerick, the district court imposed on behalf of a decedent's minor son a constructive trust on the proceeds of decedent's life insurance policy because a provision in decedent's divorce decree said he would keep all existing life insurance benefits in full force and effect for his son until the son reached 18. Id. at 111. This court reversed and remanded, however, because it concluded that the provision in the divorce decree was ambiguous. Id. The matter was treated as a motion for summary judgment, not because of any inherent resemblance between a motion for constructive trust and a summary judgment motion, but rather because "[t]he district court ruled on this matter after considering the parties' pleadings and affidavits." Id. at 112.

The district court did not err in failing to treat the motion for a constructive trust as either a motion for prejudgment attachment or a summary judgment motion.[6]

3. The Imputation of Selbak's Knowledge to Appellant.

Appellant argues finally that it was Selbak who quitclaimed the property and that it is not responsible for Selbak's activities. However, Selbak controlled appellant at the time he quitclaimed the property to appellant. Selbak also controlled the partnership from which respondent purchased limited partnership shares in the property. Selbak therefore knew of respondent's interest in the property and acted within the scope of his duties as an officer and director of appellant, and on behalf of appellant, when he effectuated the transfer. An officer's knowledge is imputable to a corporation when he is acting on behalf of the corporation and within the scope of his duties. See Minnesota Valley Country Club, Inc. v. Gill, 356 N.W.2d 356, 361 (Minn. App. 1984) (citing Brooks Upholstering Co. v. Aetna Ins. Co., 276 Minn. 257, 149 N.W.2d 502, 506 (1967), for the proposition that an officer's knowledge is imputable to a corporation if the officer was acting within the scope of his duties).[7]

A constructive trust is a remedial device by which the holder of legal title is held to be a trustee for the benefit of another who in good conscience is entitled to the beneficial interest. Such a trust is adjudged for the purpose of working right and justice, regardless of whether the parties intended to create such a relation. The elements of a cause of action to enforce a constructive trust are the existence of a fiduciary relation and the abuse by defendant of confidence and trust bestowed under it to plaintiff's harm.

Wilcox v. Nelson, 227 Minn. 545, 550, 35 N.W.2d 741, 744 (1949) (citations omitted). Selbak, as officer, sole director, and sole shareholder of LLM Inc. and limited partner of LLM Ltd., had a fiduciary obligation to the trusts that were also LLM Ltd. limited partners. He abused that fiduciary relationship when he formed appellant and transferred the defunct LLM Ltd.'s property to it. Respondent was indisputably harmed by this transfer. Imposing the constructive trust was not an error of law.


[ ]* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

[ ]1The term "respondent" will be used to refer to O'Leary and the trusts collectively.

[ ]2Appellant's reliance on Gethsemane Lutheran Church v. Zacho, 253 Minn. 469, 92 N.W.2d 905 (1958), is equally misplaced. In that case, the court reversed a summary judgment imposing the constructive trust because it found fact issues as to the equities between the original owner and her son, who had sold the property without a contractual provision that it be used exactly as the owner had intended. The constructive trust was relevant to the alleged misuse of the property. Id. at 477, 92 N.W.2d at 911-12. Here, the use of the property is not an issue.

[ ]3We note that if appellant believes that the constructive trust has no effect because of the notice of lis pendens, appellant's reason for objecting to the constructive trust is less than clear.

[ ]4The statute, Minn. Stat. § 570.025, subd. 2 (1996), imposes specific conditions on the issuing of a preliminary attachment: the claimant must have tried to inform the respondent of the application for the attachment, the claimant has demonstrated the probability of success on the merits, the claimant has demonstrated grounds for the attachment, and extraordinary circumstances prevent the claimant's interest from being protected prior to the hearing.

[ ]5Although the district court correctly stated in its order for judgment that "[p]laintiff's request that this Court put [the property] * * * in a constructive trust during the period of wind-up, is hereby GRANTED" and in its memorandum that "[t]itle will rest in trust for the benefit of the limited partners of LLM," it was incorrect in stating that "[Appellant] will lose title to the property."

[ ]6Because we hold that the motion for constructive trust was not a motion for summary judgment, we reject appellant's argument that the district court erred in requiring compliance with the 14-day notice provision of Minn. R. Gen. Pract. 115.04 for non-dispositive motions, rather than with the 28-day provision of Minn. R. Gen. Pract. 115.03 for dispositive motions. Enforcement of local rules is left to the discretion of the district court. Hopkins by LaFontaine v. Empire Fire & Marine Ins. Co., 474 N.W.2d 209, 212 (Minn. App. 1991). The district court did not abuse its discretion in treating respondent's motion as non-dispositive and following the appropriate court rules. Similarly, appellant's argument that it was denied adequate time for briefing and discovery is based on the premise that respondent had actually moved for summary judgment. We therefore do not address this argument. Moreover, because the record does not show that appellant ever brought a motion relative to either discovery or briefing, this issue was not before the district court and is not properly before us. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (a reviewing court may consider only those issues that the record shows were presented to and considered by the district court).

[ ]7We are equally unpersuaded by appellant's argument that it is not responsible for Selbak's acts because a corporation is not charged with notice of an officer's actions before the corporation came into existence. It is Selbak's act (the transfer of the property) after he brought appellant into existence that is at issue here.